Deere Invests in Software to Boost Machinery

"For decades, Deere & Co. has dominated the hardware that powers the American farm industry with tractors, harvesters and other machinery used to plant seeds and reap crops.

Now, Deere aims to extend its dominance to software to make those machines -- and agriculture -- more efficient and productive.

The company this year is rolling out self-driving tractors that can plow fields by themselves, and sprayers that distinguish weeds from crops. Deere, which helped make satellite-guided tractors ubiquitous in the U.S. Farm Belt over the past 20 years, is investing billions of dollars to develop smarter machines that the company said will make farming faster and more efficient than it ever could be with just farmers behind the wheel.

"It's all about doing more with less," said John May, Deere's chief executive. By the end of the decade, Mr. May projects that 10% of Deere's annual revenue will come from fees for using software.

Deere's equipment rivals, CNH Industrial NV and Agco Corp., agribusinesses such as Bayer AG and Corteva Inc., and venture-capital investors have collectively invested billions of dollars to buy and build systems for predicting crop performance and lowering farmers' costs with more precise operations.

Despite that investment, some startups have struggled to break into the agriculture industry, and big companies have yet to turn significant profits from their technology investments, analysts have said. Widespread use of software subscriptions for operating equipment hasn't been tried before in the farm industry.

While farmers have said they are open to test-driving new technology, many are struggling with the cost of necessities including fertilizer and fuel, which have surged in price over the past year.

Moline, Ill.-based Deere, which generated $44 billion in sales in 2021, sells around 60% of the high-horsepower tractors used in the U.S. and Canada. Deere has been guiding farmers toward a bigger leap into technology for almost 20 years, starting with an autopilot system on tractors and harvesters that is now a standard feature on nearly all Deere's large farm machinery.

By 2026, Deere wants to connect 1.5 million machines in service and a half billion acres in use to its cloud-based John Deere Operations Center, which will collect and store crop data, including millions of images of weeds that can be targeted by herbicide. Deere last year acquired California-based startup Bear Flag Robotics for $250 million to provide software for turning older tractors into autonomous-capable vehicles.

Selling farmers subscriptions to the software is expected to yield higher profit margins than sales of Deere's signature green and yellow machinery, which will continue to make up the bulk of Deere sales. A 2021 report from Bernstein analysts estimated the average gross margin for farming software at 85%, compared with 25% for equipment sales.

Deere's technology expansion could deepen some farmers' distrust of the equipment maker. For years, some farmer organizations and consumer advocacy groups have accused Deere of using proprietary software on its equipment to restrict repair work to Deere's own dealers, which farmers said raises their costs and sometimes leaves equipment out of commission for weeks. Deere has said it provides tools and repair manuals enabling private repairs, but has pushed back against what it says are attempts by farmers to modify software that controls machinery operations.

Deere is betting it can lower farmers' anxiety by offering software as a service on an as-needed basis for specific jobs, such as tilling fields or applying fertilizer. Deere said it is considering charging a per-acre fee for fields where the software is deployed. The company hasn't yet released a fee schedule. Deere said it would be responsible for fixing any problems. Farmers would need to buy the newest crop sprayers to use the software.

Nebraska farmer Taylor Nelson said he uses an enhanced version of Deere's AutoTrac guidance system, which collects and shares information about the whereabouts and work being done by people operating machinery on his 12,000-acre farm. Mr. Nelson said the system has cut down on costly mistakes, such as spraying a field twice with fertilizer.

"You can use this technology to stick people in with less experience and still get optimal results," Mr. Nelson said." [1]

1.  Business News: Deere Invests in Software to Boost Machinery
Tita, Bob; Bunge, Jacob. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 12 Sep 2022: B.3.